The Federal Reserve Bank of San Francisco (FRBSF) has published an article covering the risks of bitcoin and other virtual currencies. The article appeared in Community Banking Connections, a supervision and regulation resource by the Federal Reserve System for community banks: banks with less than US$1 billion in assets on their balance sheets.
The 1500-word article, authored by FRBSF Director Wallace Young, presents a broad overview of the cryptocurrency space and industry. Targeted at community banks – comprising roughly 94% of all banks in the United States – it explains what cryptocurrencies are, and what they can be used for. The article notes that the crypto-sector presents opportunities for community banks to provide services to bitcoin- and crypto-related businesses, and even mentions that banks could potentially be holding cryptocurrency on their own balance sheets.
While the FRBSF clearly takes cryptocurrencies seriously, the article also emphasizes that the cryptocurrency space as a whole is still very small compared to legacy financial service providers. It says:
“Note that despite what seems to be a tremendous interest in virtual currencies, their overall value is still extremely small relative to other payment mechanisms, such as cash, checks, and credit and debit cards. For example,